Tesla recently launched a new version of its Model 3 sedan priced at $46,000. The trim, dubbed as “mid-range” was fitted with a battery pack that offered an estimated 260 miles range, 50 miles less than the “long-range” trims.
Auto companies rarely pull out a trim that’s in demand. The Rear wheel drive long-range battery model fell out of favor as soon as Tesla started selling All-wheel-drive long-range battery model 3.
The price difference between the rear-wheel-drive and all-wheel-drive long-range models was $5,000. But despite the low sticker price customers preferred AWD over RWD.
Between July 2017 and October 26, 2018, Tesla registered 177,554 Model 3 VINs, out of which 69,712 or 39% were All-Wheel Drive Model3 VINs. But Tesla started registering AWD only after June 28, 2018. Nearly 56% of VINs registered since then are AWD.
June 28, 2018, to October 26, 2018:
Total Model 3 VINs Registered = 123,551
AWD VINs = 69,172 or 56%
RWD VINs = 54,379 or 44%.
Slight edge to AWD Model 3 over RWD Model 3
The percentage distribution goes against the law of demand: Lower the price, higher the demand.
Will the newly launched “mid-range” Model 3 help Tesla improve its base model’s sales numbers? Not an easy task despite the price gap between the mid-variant and the base-model widening from $5,000 to $7,000.
For customers who finance their Model 3 purchase, the difference in monthly payments on a 72-month loan is just $110.
By paying an additional $100 every month you get a dual motor, range bump of 50 miles, 0 to 60 in 4.5 seconds instead of 5.6, top speed of 145 miles per hour instead of 125 miles per hour and then there is the driving dynamics of an all-wheel-drive vehicle to further tip the scale.
If anything, losing the rear wheel drive long-range battery trim from the line up has only strengthened the case for All-Wheel-Drive Model 3. This makes one wonder if Tesla is anti-selling its base model 3.
The current line up looks pretty good on paper. A high-performance model 3 with an over the top pricing, a well packed mid variant that offers everything that you need and a base model with trimmed down specs.
But the price gap between the trims clearly shows that Tesla still wants to funnel customer traffic towards dual motor long-range battery model 3.
You can’t blame Tesla for being a bit cash sensitive at this point, as the company wants to be sustainably profitable but still launch a standard battery model 3 at $35,000. Tesla will never get there if the company doesn’t manage to get enough margin on the current lineup.
Tesla is better off selling higher priced Model 3 trims than lower priced ones and for now, all focus will continue to remain firmly on All-Wheel Drive dual motor long-range battery model 3.
But why?
Doesn’t Tesla get an advantage by selling more cars, increase economies of scale, reduce manufacturing cost per car and keep its fixed costs on a steady decline?
Higher production volume has its advantages. But a lot of those benefits won’t happen right away. But selling high margin products have an immediate effect. It will always be a tap dance between Volume/Scale/Cost reduction and Quarterly profits/ Quarterly cash flow.
Tesla’s success in selling Model S and Model X, it’s luxury Sedan and SUV, allowed the company to launch Model 3. It established the company on a global scale, helped Tesla to showcase its battery tech, allowed the company to build production capacity and thereby giving the company most of the ingredients it needed to launch Model 3.
Tesla needs AWD Dual-Motor Model 3 to bring in the cash, allow the company to increase manufacturing capacity, establish Model 3 in the global market and help the company to keep launching new trims or models at a lower price point. It’s a long road, but one that Tesla will be more than happy to stay on course.
